I’m the expired listing king of the hill — NOT. The only reason I’ve ever initiated a conversation with the owner of a property on the expired list, was if I had a specific buyer/exchanger who might fit. I began this policy due to the consistent and predictable dual attitude — mistrust of brokers/agents, and massive denial as to why their property didn’t set the brokerage world on fire.

Don’t get me wrong, as we all know agents who make much if not most of their living from marketing to expireds. Part of my reasoning, maybe the driving force if I’m gonna be honest with myself, is that my direct mail marketing was so reliably successful, dealing with expireds was like lookin’ for ways to get painful splinters.

When it comes to the 1-4 unit market, their are two generic classes of owners. Those who occupy, and those who don’t. I look back now and marvel at how myopic my thinking was back then. I specialized in investment property for Heaven’s sake, why wouldn’t I choose to leverage my knowledge advantage with investors who were recently unsuccessful in selling? Double Duh.

If you feel comfortable with your current basic investment knowledge, including pertinent Internal Revenue Code Sections, or are confident you can get yourself there quickly, here’s how you might garner some new listings. To save space I’m not gonna spend time on specific strategies implied here. You either know them or not. I’m easy though, and will freely share if you call.

First, let’s understand exactly the advantage you have with an investor vs a homeowner. Before we continue, I don’t bother with bank owned listings or short sales — merely a personal preference.

The reasons for selling/exchanging are mostly objective, not emotional. There are all kinds of solid reasons for an investor to make a move. Chances are, since they own just one or two local rentals, they’ve really never spoken to someone who knew which way was north on the investment map. You’ll stand out as a very positive exception. The best thing that could happen though, is you answering a question they never knew to ask. Once you do that — you’re in.

Here’s your homework — Research the property

  • How long have they owned it?
  • Do they own more than one?
  • WHEN were they acquired?
  • Have they refinanced themselves into oblivion?
  • Are they high, or low equity?
  • If several owned, are some ‘equity winners’ some ‘losers’?
  • Do they live locally, or outa town?
  • Is there a common acquisition date for two or more properties?
  • Go see the property — a Captain Obvious Duh.
  • Write them first, though due to experience, I’m so comfortable with my ability to think on my feet, I don’t mind calling them first — if I can find a number. But experience is the key there, cuz trust me, ya ain’t gonna fake knowledge of the Internal Revenue Code to even a new investor. They may not know what you said at first, but they’ll eventually ask you a question eliciting your best impersonation of crickets. Not a good thing. 🙂 I find when talking with them, their questions are like gifts that never stop giving. More chances for me to set myself apart from the house guys with whom he’s been dealing. The typical initial conversation usually results in me answering 3-5 questions they’d never of asked in a million years.

    If they’ve owned it long enough to have emerged with exchangeable equity, they’re a prospect. This can be easily ascertained by the acquisition date — and checking to ensure they haven’t blown the equity away with a foolish new loan. If they own several local 1-4 unit rentals, finding out they bought some on or before 2001-2 and some after 2004 is gonna be golden for you. They live outa town? Even better, but not as big an advantage as most folks think. If they have two or more props bought at the same time, it’s possible it was part of a tax deferred exchange. Don’t ever assume that though.

    Let’s construct an example

    An expired listing of a local duplex, acquired in 1999. It has a net equity, in your opinion, of roughly $100,000 or so. Your research shows he also has two other rentals bought in early 2004. They both appear to have net equities of what amounts to a family dinner at Sizzler’s IF nobody orders dessert. This guy will love hearing from you.

    Here’s what you now know about the property, and maybe about the owner.

    1. The listing stated any sale would be subject to his intent to effect a tax deferred exchange per IRC Section 1031. Translation: He thinks that’s his only option.

    2. The two props bought in ’04 are in areas, and encumbered with loans you know are now generating him negative cash flow — not boatloads, but easily enough to irritate. Opportunity: You can eliminate that for him.

    3. Those last two props were bought a few months apart — not an exchange. This means: He doesn’t have the baggage of ‘adjusted basis’ from previously traded property(s). Mikey likes that.

    4. His duplex rents are woefully low, and the property doesn’t show well, sporting some deferred maintenance. Translation: He really believes since he bought it that way, then so will the next guy. Really? FAIL

    5. His broker was a house guy, who treated the duplex like, well, a house. Opportunity: Once he’s impressed with your obviously superior knowledge, he’ll be far more likely to listen to your marketing wisdom too. You’ll have gained some credible authority.

    You are now armed to the teeth with the key to the vault.

    Here’s an outline of how your letter might lay out

  • 1031 exchange? I may have a way, depending upon your specific circumstances, for you to take the gain in cash, no 1031, without paying the taxes.
  • Why weren’t the other two props (addresses here) also on the market? The negative cash flow must be drivin’ you nuts.
  • I may be able to demonstrate how to rid yourself of your two poorly performing rentals, and their negative cash flow, while simultaneously turbo charging your annual depreciation and rejuvenating capital growth.
  • I’m confident we can make your units salable — there are problems with which you may not be aware.
  • We have the answers to the questions you may not have known to ask.
  • Think he’s received a buncha letters from agents since the listing expired? You bet. What did most of ’em say?

    I’m the best, blah blah blah. I’m a huge producer, here’s my resumé. You know the rest, right? Right. But you’ve told him at least one if not two or three things he didn’t know. The letter is about him, not you. You’ve also established better credibility through superior knowledge. He’s an investor — investors are interested in their goals, either capital growth or cash flow. Makin’ a move is necessary periodically, but an irritation for them. Failure just really pisses ’em off.

    On the other hand, you’ve not only differentiated yourself, you’ve told him you might be able to eliminate negative cash flow, get rid of his crappy props, increase his tax shelter, while possibly avoiding capital gains taxes without resorting to a tax deferred exchange — all without once claiming to be in the Trillion Dollar Production Club.

    If you’re able to call him a day or two after he’s received this letter, all the better. Also, the letter should be hand signed and addressed, using a real first class stamp. I’ve even contemplated using a plain white envelope, but with my letterhead for the paper. Haven’t done that yet, as I don’t want them to feel deceived in any way. I also don’t use a window envelope — ever.

    Another advantage I have is the ability to put url’s in the P.S. It references any posts I think might be germane, while magnifying my credibility as an investment broker. In one case, I linked to a post detailing a real life example of a client in her exact position. She called me two days after I’d mailed it.

    I frankly don’t know how this approach would work for owner occupied expireds. The last time I listed an owner occupied home, Carter was in office. 🙂 Gotta think though, that the principles would work there too, just not as often. You’d hafta gimme your input on that one.

    I haven’t done this in awhile, as most of my business hasn’t been local for about six years now. But I’m comin’ back in a big way, so this practice will resume shortly, and with much vigor.

    Frankly, it’s like shootin’ ducks in a barrel. My conservative guess would be a batting average of roughly 10-20%, possibly more. When I did it in the mid-late 90’s, I averaged just over 30%. But I was very picky about my targets.

    Answer a question or two they never knew to ask, and you’re in. You’ll become the agent who knows.

    I’m willing to lend you a hand

    Wanna try this, but need more knowledge? Email me with your cell number, and I’ll take you to school, so to speak. Furthermore, if you prefer, I’ll even talk with you and your prospects/clients on a conference call(s). If I do this, and you’re successful in listing and selling the property, I’ll charge a referral fee. It’ll be less than you’re used to, as I’m Old School on that subject.

    Your thoughts?